- Most of the work happens before closing day, so the day itself is mainly signing, confirming conditions, releasing funds and handing over the business.
- A buyer of a business should obtain a PST clearance certificate, or risk liability for amounts the seller owed.
- If all or part of a business is disposed of, employment is deemed continuous, and the purchaser must honour the employees' length of service, subject to some exceptions.
Closing day is when the business changes hands. Money moves, documents are signed and the buyer takes over. If you have never done it before, it can feel like a mystery, especially because much of it happens through your lawyer and not in one room.
This article gives a step-by-step view of a typical closing in British Columbia, including what the lawyer does at each stage. Every deal differs, so the sequence below is a general guide and your purchase agreement controls.
This article covers the law of British Columbia.
Before closing day: getting ready
Closing is the final step in a longer process. The purchase agreement lists conditions that must be met first, such as financing, landlord consent, and any licence or franchisor approvals. Lawyers for both sides usually prepare the closing documents in advance and exchange drafts so there are no surprises.
- Conditions in the purchase agreement are satisfied or waived in writing
- Buyer's funds are arranged and available with the lawyer
- Seller's documents are signed and held in trust until closing
- Tax clearances and consents are in place
- Staff, suppliers and customers have a plan for the handover
Tax and government steps to finish
A purchaser buying a business, or goods, software or an interest in a business in a bulk transaction, should obtain a PST clearance certificate. If the purchaser does not, they are liable for an amount equal to any outstanding amount owed by the collector. With the collector's consent, the purchaser can apply online or submit form FIN 447, and the certificate confirms PST, penalties and interest are paid up to the issue date.
How PST applies depends on whether the deal is an asset sale or a share sale. In an asset sale it applies to taxable assets such as affixed machinery, equipment, computer hardware and supplies, but not to goodwill, inventory, accounts receivable or real property, and it does not apply to the sale of shares of a business.
For GST/HST, where the buyer acquires all or substantially all the property needed to carry on the business, the seller and a registrant buyer may jointly file a prescribed election so that no GST is payable on supplies under the agreement. The election is not available where the supplier is a registrant and the recipient is not. Tax also still applies to a taxable supply of a service by the seller, to taxable supplies of property by lease or licence, and, where the recipient is not a registrant, to a taxable sale of real property.
If land is included, the purchaser pays property transfer tax at 1% on the first $200,000 of fair market value, 2% from over $200,000 to $2,000,000, and 3% above $2,000,000. The further 2% on value above $3,000,000 applies only to residential property, or only the residential portion of mixed-use property.
On closing day: signing, funds and handover
On the day, the lawyers confirm that all conditions are met and that the signed documents match the agreement. The buyer's lawyer then releases the funds as agreed, and the seller's lawyer releases the signed documents. In many cases the lawyers hold items in trust until both sides are ready, so that nothing is released early.
- Signing: the buyer and seller sign the final documents, or the lawyers confirm they were signed in advance.
- Adjustments: amounts such as prepaid rent, utilities and inventory are adjusted to the closing date.
- Funds release: the buyer's lawyer pays the seller's lawyer, pays off any registered debts, and keeps back amounts for taxes or holdbacks that were agreed.
- Handover: the seller delivers keys, passwords, codes, records and supplier contacts, and introduces the buyer to key people.
- Registrations: your lawyer files what must be filed, such as land transfers and updates to the corporate records.
If a liquor licence is involved, the establishment can stay open during the application. The seller remains responsible for the licence until the LCRB tells both parties the application is administratively complete, and then the buyer becomes the deemed licensee. An expired licence cannot be transferred, so keep the renewal current before closing.
Employees, leases and what carries over
If all or part of a business is disposed of, the employment of an employee is deemed continuous and uninterrupted by the disposition. The purchaser takes on the employer role and must honour the employee's length of service, and if the purchaser terminates after the sale, compensation for length of service counts from the original hire date. The purchaser pays outstanding wages, including wages due before the sale, and assumes accrued vacation pay.
There are exceptions. If an employee declines the purchaser's offer and the conditions are not substantially changed, the employee is deemed to have quit, and no notice or compensation is owed. If the purchaser's changes are substantial and adverse, the director may treat it as a termination, and the purchaser would pay compensation. A trustee's sale in bankruptcy can end employees' rights under the Act.
Leases need attention too. Whether a landlord can refuse consent to an assignment depends on the lease wording and case law, since the Commercial Tenancy Act does not set a general rule. Get consent before closing day, not after.
What to do next
- Ask your lawyer for a closing checklist and a timeline
- Confirm who applies for the PST clearance certificate and when
- Ask your accountant whether a GST/HST election is available
- Confirm landlord, franchisor and licence approvals are in hand
- Plan the handover: keys, passwords, staff meeting and supplier notices
- Keep copies of the signed closing documents and a final statement of adjustments
Frequently asked questions
Do the buyer and seller need to be in the same room?
Not usually. Lawyers often arrange signing in advance and hold documents and funds in trust until closing. Your lawyer will tell you whether you need to attend.
Can the business stay open during a liquor licence transfer?
Yes. The establishment can stay open during the application, and the seller remains responsible for the licence until the LCRB tells both parties the application is administratively complete. After that, the buyer becomes the deemed licensee.
What happens to the employees?
If all or part of a business is disposed of, employment is deemed continuous, and the purchaser takes on the employer role and must honour the employee's length of service. If an employee declines the purchaser's offer and conditions are not substantially changed, the employee is deemed to have quit, but substantial and adverse changes may be treated as a termination with compensation payable by the purchaser. A trustee's sale in bankruptcy can also end employees' rights under the Act.
Why does the buyer need a PST clearance certificate?
Without it, a purchaser is liable for an amount equal to any outstanding amount owed by the collector. The certificate confirms PST, penalties and interest are paid up to the issue date.
Sources
- Province of British Columbia – Transfer a liquor licence — www2.gov.bc.ca
- Employment Standards Act, RSBC 1996, c. 113 — bclaws.gov.bc.ca
- BC Employment Standards Branch – Interpretation Guidelines, s. 97 — www2.gov.bc.ca
- Province of British Columbia – Buying and selling a business (PST) — www2.gov.bc.ca
- Excise Tax Act s. 167 — Justice Laws (federal)
- Province of British Columbia – Property transfer tax — www2.gov.bc.ca
- Commercial Tenancy Act, RSBC 1996, c. 57 — bclaws.gov.bc.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a buying & selling a business question
Ask our Team for a quote. We reply by email.